Mortgage payments are not as bad as some people make them out to be. In fact, it is a low-interest debt that can help you maintain your financial liquidity.
Achieve home ownership and move into that dream house that you have been dreaming of for years. Mortgages also improve credit ratings that are quite rewarding in different aspects.
For anyone who is interested in applying for a mortgage to buy a house, often, the first question that comes to mind is “How much can I borrow?” when in fact, that first question you should be asking is “How much can I afford?” instead. This small change in priorities when considering the loan can help you avoid borrowing more money than you can afford.
Lenders often offer more money than you expect, a reality that we all have to accept and be wary of. The bigger the loan, the happier they are with the transaction. You might not notice how much interest you will have to pay overtime. Luckily, here are a few simple tips on how to know how much you can afford to borrow for a mortgage.
Use a mortgage calculator
Do not worry if you do not know how to calculate your payments. You can quickly look at how much your monthly mortgage payment will amount to any mortgage calculator that you can find online. This device can help you determine your monthly payment estimates, given that you input the home price, down payment amount, loan term, and interest rates.
When using the calculator, you might want to consider a few factors that may affect your loan term. For instance, a 30-year fixed-rate loan will not work well if you only intend to live in the house for ten to fifteen years. Moreover, a 15-year fixed-rate mortgage might have larger monthly payments than longer terms but will cost less interest over the loan’s life.
Determining if you can the downpayment for the home also plays a crucial role. Deciding how much upfront cost you should pay is always a big question as it affects the monthly payments that will follow. A lower down payment means relatively higher monthly fees and extended payment periods with possible higher interest costs.
Consider your debt-to-income ratio
The first step to knowing how much you can afford is by determining how much money you have and how much money you will have over the course of time. Think about your income and other recurring debts and hone those figures to a fine point. Lenders will also use your income statements to determine if you are capable of paying for the loan.
If your debt is much higher than your income, you might want to reconsider the house you are buying. Buying a home means dealing with hefty amounts. However, if you cannot afford the house you intend to buy, the best decision is to move on to other options. Applying for a mortgage is not about how much you can borrow; rather, how much you can afford.
List your other debts and expenses
Home mortgage affordability is not exclusive to the downpayment and monthly installments. Rather, it is vital that you include other homeownership expenses such as insurance, taxes, and many more. It is also important to note that you would need to spend money on new furniture, renovation, and other types of disbursements.
Moreover, all of your monthly expenses should be taken into account. Do not focus on the monthly payments alone, as you might miss out on a dozen more bills that you have to pay for. Debt can double into large amounts really fast, mostly when left unchecked. It is essential to take note of your other expenses so that you are aware of your budget and money flow.
Consider different types of scenarios
Life is filled with unexpected twists of events, and frequently, it may cause a dent in your finances. You should have enough money to cover unfortunate instances such as a sudden house or car repair. You may also want to include travel money in your budget or include some minor luxury expenses.
It is crucial to consider these kinds of scenarios and possible costs to ensure that you do not drown yourself in debt. You can talk to more than one lender to compare the terms offered. This way, you can get an idea of the possible offers and see what works best with your budget. Remember that the decision is yours to make.
Try not to submerge yourself in large debts. Otherwise, you will not be able to enjoy your house as you will spend the rest of the following years paying for a loan you could barely afford.